Classify costs associated with operation of a factory

Various costs associated with the operation of factories are given below. Classify each cost as either variable or fixed with respect to the number of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to units of product. List each numbered item with either a 'V' for variable or 'F' for fixed AND either a 'D' for direct cost or 'I' for indirect cost so for example: 1. VD, 2. FI, etc.

1. Electricity to run production equipment.
2. Rent on a factory building.
3. Cloth used to make drapes.
4. Prodcution superintendent's salary.
5. Wages of laborers assembling a product.
6. Depreciation of air purification equipment used to make furniture.
7. Janitorial salaries
8. Peaches used in canning fruit.
9. Lubricants for production equipment.
10. Sugar used in soft drink production.
11. Property taxes on the factory.
12. Wages of workers painting a product.
13. Depreciation on cafeteria equipment.
14. Insurance on a building used in producing helicopters.
15. Cost of rotor blades used in producing helicopters.

Solution Preview

Fixed costs are those costs which remain the same irrespective of the production or sales level. Variable costs change with change in production.

Direct costs are those which are closely related to product.

1. Electricity to run production equipment. - Fixed and InDirect ( More specifically its semi fixed as Rentals are fixed)